UBS Bank, Switzerland's largest, was forced to reveal the names of over 4,500 American depositors and paid a $780 million penalty.

TWO AND a half years after he entered federal prison, former UBS banker and whistleblower Bradley Birkenfeld has walked out with the last laugh — to the tune of $104 million.

That’s the staggering sum the IRS handed Birkenfeld this week for revealing how thousands of rich Americans were hiding their money in Swiss banks to evade U.S. taxes.

It’s the biggest individual whistleblower payment in the nation’s history, Birkenfeld’s lawyers said at a Washington press conference.

Several years ago, the world financial community was rocked by news that this obscure Swiss banker was cooperating with federal authorities. Birkenfeld’s insider information led to federal criminal charges against UBS, Switzerland’s largest bank. The bank was eventually to forced to turn over the names of more 4,500 American clients with secret bank accounts, and it paid a $780 million penalty as part of a deferred prosecution agreement.

Since then, more than 34,000 Americans have disclosed their offshore accounts to the IRS and paid billions of additional dollars in back taxes — all in an effort to avoid criminal prosecution.

Even the Swiss government was forced to reform its bank secrecy laws.

In addition, two dozen bankers, lawyers and wealthy U.S. residents have been indicted for tax fraud and conspiracy, and a half-dozen foreign banks are under investigation.

UBS Bank, Switzerland's largest, was forced to reveal the names of over 4,500 American depositors and paid a $780 million penalty.

(JIM YOUNG/REUTERS)

“The comprehensive information provided (by Birkenfeld) was exceptional in both its breadth and depth,” said the IRS award report.

So why did the guy who triggered these extraordinary events end up in jail?

Well, President George W. Bush’s Justice Department decided to charge him with tax fraud and conspiracy in 2008. Prosecutors claimed Birkenfeld failed to disclose information on one of his biggest clients at UBS, a California real estate developer.

He and his lawyers at the National Whistleblowers Center, Stephen Kohn and Dean Zerbe, deny that. They say Birkenfeld testified about that particular client to a Senate committee investigating tax fraud even before he was arrested.

Once Barack Obama became President, the Justice Department kept up its efforts to get Birkenfeld.

Prosecutors secured a 40-month sentence for him – thus sending a terrible warning to other bankers who might think of exposing financial crimes within their own institutions.

UBS Bank, Switzerland's largest, was forced to reveal the names of over 4,500 American depositors and paid a $780 million penalty.

Encouraging whistleblowers is often the only way to expose “tax-evading fat cats,” Zerbe said.

The same week in August 2009 that Birkenfeld was sentenced, President Obama went golfing at Martha’s Vineyard with one of his best friends in the banking world, Robert Wolf, chairman of UBS America’s Group — the U.S. subsidiary of the Swiss giant.

By then, Birkenfeld had already filed a claim under a 2006 federal law that allows up to 30% of any money the government recoups in a fraud case to go to the original whistleblower.

Birkenfeld was released from prison last month, after receiving time off for good behavior. He was transferred to a halfway house in New Hampshire and is is now under home confinement. He still faces three years' probation after his sentence ends.

The huge $104 million IRS award stands in sharp contrast to the Justice Department actions.

Birkenfeld’s lawyer Kohn insists his client deserves not only the money, but “a pardon from the President.” The award and a pardon would signal more employees at major banks to tell what they know about financial fraud.